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AETHOS Consulting Group has been evaluating corporate governance practices in gaming for over a decade, examining board makeup, independence, committee structure and commitment to pay-for-performance. Significant trends in corporate governance we witnessed this year include:

Boards having more influence on corporate strategy;

More influence from shareholders regarding executive and board pay;

More transparency in board member attendance and performance;

Increased discussion of succession planning in public documentations;

Increased policies for stock ownership for executives and directors; and

Boards playing a greater role in merger and acquisition discussions.

MULTIMEDIA GAMES RISES TO TOP

In determining the performance of each board, we studied the following five areas of corporate governance:

Size, makeup, independence and diversity of the board;

Committee structure, number of meetings and effectiveness;

Presence of related party transaction;

Board self-evaluation and communication; and

Pay-for-performance models for board and executive pay.

In this year’s study, Multimedia Games jumped from fourth place to first, which may have something to do with the fact the company was in play and ultimately acquired by Global Cash Access. Pinnacle Entertainment came in a close second this year, while last year’s winner, MGM Resorts slid to fifth place. International Game Technology (IGT) took third displacing Ameristar, which was acquired by Pinnacle in August 2013. Carnival and Scientific Games tied for fourth place.

SIZE AND MAKEUP

Examining the separation of the chairman and chief executive officer roles, only one-third of gaming industry combined the two, down from nearly 50 percent in last year’s study. Similarly, we saw fewer insiders holding the chairman role; a sign that boards are gaining real independence. Two-thirds of the survey group had a board comprised of an odd number of directors—between five and 11—a range that experts consider to be optimal.

Another aspect of board size and make-up included the number of independent versus insider members, just under half the companies had boards comprised of 25 percent or fewer insiders. With respect to term length, half of the industry put their entire board up for annual re-election versus having staggering elections.

The evaluation of board diversity policies and presence of gender and racial diversity board members, revealed a slight improvement over last year, but most boards still do not have a formal policy around the presence of gender and racial diversity in the boardroom.

COMMITTEE STRUCTURE

The Securities and Exchange Commission (SEC) requires public company boards to form four committees: audit, compensation, governance and nominating. In addition, best practice dictate that these committees be comprised entirely of outsiders. Eight gaming companies out of 22 we examined had a perfect score in committee structure, a larger overall percentage than last year; and another positive step.

TRANSACTIONS WITH RELATED PARTIES

Our category called “transactions with related parties” examines where conflicts of interest may arise due to a company, insider or board member conducting business with an organization that is regarded to have a material relationship with the former. If any related party transaction is present, the company received zero points for the category. Only eight out of the 22 companies had a perfect score in this area, unchanged from last year.

EVALUATION AND COMMUNICATION

The effectiveness of board and committee evaluation as well as shareholder communication was evaluated in this category. Six out of this year’s 22 companies received a perfect score compared to seven in last year’s study. In the coming years, we hope to see improvement in this area as shareholders demand more transparency in communication and accountability.

PAY-FOR-PERFORMANCE

We believe that the pay-for-performance for executives and directors improved over last year due primarily to several companies instituting stock ownership requirements—a trend that was prevalent in the greater Fortune 500. In addition, more gaming companies instituted claw-back policies for bonuses to align with section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

We also evaluated the pay-for-performance models used by gaming companies, and penalized those that did not have a clear articulation of compensation philosophy and incentives, absence of excise tax gross-ups, and excessive perquisites and disclosing results of the non-binding vote on executive compensation known as “say-on-pay.” In this year’s study, six companies achieved a perfect score in this category compared with only two last year.

Overall, it appears that governance along with solid financial performance has made the industry a target for privatization and consolidation. It will be interesting to see if other gaming companies will choose to split like Penn National or sell to private investors.

Keith Kefgen is CEO and managing director of AETHOS Consulting Group. With over 30 years of experience in the hospitality industry, Kefgen is a career hospitality executive. Having graduated from the Cornell University Hotel School, he went on to work at Waldorf-Astoria Hotel before embarking upon a career in hospitality executive search. He was the CEO & founder of HVS Executive Search before joining AETHOS Consulting Group. A frequent lecturer on industry related issues, Kefgen has written more than 100 articles on the topics of executive selection, pay-for-performance, corporate governance and executive leadership. Most recently, he published his first book, The Loneliness of Leadership. He can be reached at www.aethoscg.com.

Juliette Boone has amassed a wealth of experience in her
18-year hospitality industry career. She has a diverse professional background
encompassing hotel food and beverage operations, culinary arts, catering sales
and operations, contract food service, concept development, hospitality
education and hotel consulting and valuation. She holds a master’s degree in
hospitality management and a bachelor of science degree from Cornell
University.

Events

The spread of COVID-19 has compelled all casinos to rewrite their 2020 playbook. In this high-level panel you will hear how casino marketers can kick-start and rebuild customer relationships now that the post-closure phase is underway. Specific issues to be covered will include what your near-term customer re-engagement plan should look like, how relationship management and loyalty programs that were impacted by the shutdown can be retooled, and some rules of the road for casino marketers as we point toward the second half of the year.

How long do you think it will take the gaming industry to economically recover from the COVID-19 pandemic and government-mandated closings?

In this issue of Casino Journal, The gaming industry responds to the social and economic onslaught of COVID-19, Developing a Coronavirus Protection Strategy for Casinos and Cardroom, A New Way to Build Casino Loyalty during Coronavirus, and much more!

In this issue of Sports Betting Management, read how more and more Native American properties establish sportsbooks or strike marketing deals with professional teams and leagues, The National Football League (NFL) continues to have an impact on sports betting within the U.S., and much more!